I was reading a McKinsey interview with the head of the Rijksmuseum on the subject of Agile. For some time now, since a conference I ran in July on Agile and New Forms of Organisation, I have been trying to get clear in my mind what the difference is between “agile organisation” and “cross-functional teams”. This interview helped me clarify a couple of points.
Cross-functional teams have been a feature of organisation since the 1960s, when Boeing first developed a new aeroplane using a multi-functional approach. This successful experience was documented by Jay Galbraith, who called it a “matrix structure”. It was one of the first documented uses of matrix organisation ideas: in Boeing’s case a function/project matrix.
So what is new/different about Agile compared to cross-functional
teams? Here is my list

Agile team members are allocated to the agile team full time. Many cross-functional project teams are part time. Of course, many, like the Boeing example, are also full time (at least for a number of years). Just to confuse us all, some people call teams with part-time members “agile” teams.

Agile requires a fully defined mission for the team. It also gives freedom for the team to “self-manage” in delivering the mission. Project teams will typically have objectives, but often not as much care is taken in defining the mission of the team, and less commitment is given to ensuring the team has freedom to work in whatever way they like.

Agile typically requires co-location of the team. Cross-functional, project-team members often remain located in their function but come together for joint activities. Co-location is believed to be an important part of agile because it produces better communication (essential to self-management), more commitment and more speed.

Agile typically involves using many of the methods of ‘scrum’, like backlogs, sprints, stand up meetings, visible progress displays, etc. Project teams, at least historically, involved few standard ways of working, and project management typically uses a “waterfall” approach.

An agile team needs a “product owner”, the person in the team who prioritizes the backlog and does other “team-leader like” roles. A cross-functional project team has a team leader, whose role is typically broader and less well defined.

An agile team is expected to produce intermediate outputs and trial these outputs with the beneficiary/customer it is serving. The concept of “minimum viable product”, from Lean Start Up thinking is important here. Agile teams are expected to generate trial outputs quickly and expose them for comment and reaction. Project teams, more typically work in a “waterfall” approach, only exposing their output towards the end of their work.

An agile team is a permanent part of the organization. Whereas a cross-functional project team is typically expected to have a limited life, often months not years. However, many people use “agile” to refer to temporary teams, and because organizations change fairly frequently few agile teams stay the same for more than a year or two.

Organisations with many agile teams (such as Spotify), typically call these teams “squads” and group them into “tribes” to help manage coordination between “squads”. The functions are called “chapters”. Organisations with many project teams may have a “project office” to coordinate “multiple workstreams”, as, for example, in post-merger integration projects.

In summary, some cross-functional project teams (those with
long time horizons, well defined missions, clear team member roles, scrum
working practices, sensitivity to their customers, etc) are very similar to
agile teams. But the typical
cross-functional project team has important differences from the strictly
applied agile team.
This raises the question of what is the same between agile
teams and cross-functional project teams.

Both types of team have members drawn from
different functional disciplines, and the functional disciplines are still
responsible for the capabilities of their people. This is the matrix element.

Both types of team have defined objectives and
are expected to deliver within set time frames.

Both are ways of breaking down the functional silos that stultify organisations. But “agile” is also associated with speed, customer-orientation and higher levels of motivation and engagement.